Investvine: "Ten reasons the Philippines won’t shrug off its laggard label"

Markham · Jul 17, 2013

Here's an accurate report from Inside Investor which doesn't make particularly pleasant reading.

It has been called the “new economic dragon,” a far cry from the hitherto ignominious reputation the country once commonly conjured up. Long one of Asia’s most disappointing economic tales, the Philippines remains far from removing its laggard label, no matter the fluting fanfare and praise.

Behind the smoke screen of breakneck GDP growth numbers, the Philippines harbours seemingly insurmountable issues that it must overcome to legitimately prove it has once and for all discarded its “sick man of Asia” tag.

The Philippines became the talk of Asia by expanding 7.8 per cent in the first quarter of 2013, 0.1 per cent faster than China, making it the fastest growing economy in the Asia-Pacific region. Much of that growth can be attributed to Aquinomics – the eponymous economic dogma of the incumbent president — and a vivacious BPO industry that is building a new middle class.

But when questioned by Bloomberg late May on his success in riding the country of its laggard reputation, President Benigno Aquino III admitted that the path needed to clear the way for the Philippines to come out of the doldrums is still being carved, reflectively acknowledging that his politician parents would expect more of him. That Luzon suffered a major blackout during the interview only underscored, if poetically, the dark ages the majority of 94 million Filipinos still live in.

As President Aquino prepares to make his mid-term State of the Nation Address in mid-July, the list of challenges that will have to be fought if the Philippines is to retain its newfound economic envy – and, more importantly, legitimacy — is daunting.

1. Pervasive corruption

Corruption is often touted by the Aquino administration as being the main source of the country’s poverty blight. One has to question, however, just how much of it is a wielded as a convenient scapegoat.

The issue is nonetheless a major concern in and out of the country, and rightfully so. According to Transparency International, the Philippines is the 6th most corrupt nation in ASEAN, receiving a Corruption Perception Index score of 34. This stoic figure can best be portrayed in reality by governmental bodies’ – be they customs or internal revenue — penchant for writing out apocryphal charges and fines that negatively affect foreign perception by stacking up layers of red tape like so many layers of lechon. The process of cutting through the Philippine fat is a deterring prospect for any incoming business.

2. Dependence on export labour

While a high-level member of the Philippine business community recently told Inside Investor “I don’t have any problem with export labour,” it cannot be denied that the legitimacy of an economy will be eroded when locals themselves do not buy into a system that clearly cannot provide for them. The statistics alone should be a clarion call to build up a manufacturing base at home, but instead public officials seem to have become resigned to the fact that the Philippines – the fastest growing population in ASEAN – cannot possibly backpedal on the trend.

In logically direct opposition to this sentiment would be recent reports that herald a return of overseas Filipino workers (or OFW, that detached inhuman acronym) to their home because of the so-called economic boom. Yet the Philippines has grown dependent on their workers contributing a substantial 10 per cent to annual GDP, a tireless trend that brought in $7.7 billion during the first three months of 2013. Just because Philippine business leaders can convince themselves that sending workers abroad is merely part of the new order of the global economy doesn’t mean the rest of the world will buy into the country’s inability to provide their own citizens jobs.

3. Apocalyptical infrastructure

Roads, rails and airports in the Philippines are nightmarish, more an exercise in expedience than an attempt to facilitate movement. Last year a travel magazine made hearts drop in the halls of the Department of Tourism by labeling Manila’s Terminal 1 of the Ninoy Aquino International Airport “the worst in Asia.” During my recent trip through the terminal, the scavenger hunt that ensued when trying to get a WiFi signal to swipe my debit card provided a potent supporting anecdote to this inglorious accolade.

Beyond being an utter trial in patience for visitors, poor infrastructure also affects the juvenile manufacturing sector, which is starved for greater connectivity to make its supply chains more than off-road racetracks (that pass through battalions of bandits in parts of the country nonetheless). Moreover, the shaky state of electricity supplies that are provided for those lucky enough to find a way on the grid makes prospective manufactures with enough wit spurred to set up their own generators. Many ask: Why even bother?

4. Extreme income inequality

Approximately 40 per cent of Metro Manila’s 13 million residents live in informal settlements, according to the Asian Development Bank. It is a starling backdrop to the pageantry of economic prowess that had led to the “new economic dragon” label, as well as perhaps the most potent power of undoing for the accomplishments achieved thus fair. Moreover, the crushing state of poverty in the Philippines lends to an overall disheartening reality that leads to the vicious cycle of workers choosing to work abroad.

The divide between the “haves” and “have-nots” is the most starkly apparent in the Philippines, the country with the greatest income disparity in the ASEAN bloc. While Makati, the country’s financial district, breathes an air of business savvy intensity, and the latest velvet-rope club opening in Fort Bonifacio perfumes of exclusivity, large chucks of the city (and indeed the country) seem forever forlornly beneath a glass ceiling. This is most conspicuous when one drives between the booming city nodes of Metro Manila, a ride that cuts between the cinder-block shanty towns that surround these skyscrapers, pools of humanity that could dissolve the credibility of the economy built upon their backs.

5. Severe weather seasons

When typhoon season hits, those in Taiwan and Hong Kong nervously look to the Philippines, openly hoping that the storm with its floodwater surges and devastating winds bends the Philippines to a point that the earthly force won’t make it their way. Year after year, the Philippines is bombarded by winds and rains that topple rural homes, which farmers fatalistically rebuild only to face the next brunt.

The storms ravish agricultural productivity in a country that is still dependent on the sector for the majority of employment, a factor that was a key contributor to the increase in the country’s unemployment rate to 7.5 per cent in April 2013 as Mindanao farmers remained out of work from Typhoon Pablo in 2012.

6. Feudalistic politics

Outside of urban centers, the Philippines is governed by local personalities, a high-ranking governmental official working in Mindanao once told me. His perspective admittedly parochial, it is an observation that is nonetheless all encompassing in the archipelago. Ever intertwined into the country’s dark ages persona, banditry is a societal norm, with local politics involving more Mafioso-style intimidation than imagination in Hollywood could muster. Political leaders in the “province” command large arsenals and armed militias to defend their stakes and pressure opposition – be it competing politicians or even the central government – into kowtowing. The feudalistic nature of the Philippine islands is indeed at the core of the Filipinos’ own attachment to guns, as well as the rundown sense of ownership in the central government when it comes to promoting rural public services.

7. Dynastic hold of the business world

Amid the joint efforts of the region to work towards instating anti-trust laws outlined in the ASEAN Economic Community, the entrenched business dynasties in the Philippines represent a major impediment. About six to eight elite business families (depending how you define them) have stakes in the majority of the wealth being created in the economy, helming the largest and most influential companies in the country, effectively crowding out domestic competition. (Foreigners, with the 60/40 ownership law, can’t even be considered to wield any sway.)

8. Electorate inconsistency

A country that has a history of reinstating the unashamedly profligate wife of a former dictator (Imelda Marcos) and a former president that suffered a coup de grace by the military (Joseph Estrada) is worrisome. The inconsistency in the Philippine electorate is the perhaps the most frightening of all for the perpetuity of Aquinomics and what the dogma strives to accomplish by 2016 (when President Aquino steps down). If the policies and frameworks that have geared the once-haywire economy into being stable are not institutionalised, than the lofty ambitions de jour may be all in vain.

9. No manufacturing = no jobs

The Philippines, according to the Asian Development Bank, has a “missing leg” – the manufacturing sector. In an affront against the conventional developmental model, the Philippines has engendered a services industry before manufacturing, skipping out on the much vaster pool of labour-intensive jobs that comes with it. To create more jobs – a key ambition of those who seem to constantly sputter with dreams of “inclusive growth” – the Philippines will need to develop itself into a manufacturing belt. However, poor connectivity and infrastructure (as mentioned above) coupled with inordinately high electricity costs for the region will kill competitiveness, along with any easy lever to employ Filipinos, who increasingly find themselves dependent on family members, leading to a leeching culture that is antipodal to the credence of Catholics.

10. Slow migration towards KPO

Business processing outsourcing (BPO) companies in the Philippines, the country’s industry-centric association told Inside Investor, are silent knights. They are little known to the outside world due to similar reasons that stymie growth in manufacturing: poor intra-industry communication, a lack of effective marketing schemes and failure to target competitive advantages. Yet the BPO industry is the largest private employer in the country and, contrary to some beliefs and despite its vitality, will not take over India as a world leader for at least another 10 years, Senior Executive Director Gigi Virata at the Information Technology and Business Process Association of the Philippines said. The lack of marketing and innovation in imagination to push the industry into more lucrative services; eg, finance, medical and IT, will slow down growth in the middle class and ultimately assign the country to a familiar spot at the bottom of the heap that can be easily overlooked.
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Anon220806 · Jul 17, 2013

Nice summary. Well not exactly nice, but you know what I mean.

Aromulus · Jul 17, 2013

I am definitively retiring in Italy.................

Methersgate · Jul 17, 2013

Thanks Mark - I would have to say that that summary is very fair.

The "haves" really have no inclination to do anything about it, and the have nots are more concerned with tomorrow's meal.

aposhark · Jul 17, 2013

We see many of these failings when we visit there.

I haven't seen major changes in the last 25 years, well at least the sort of progress you would hope for.
The ones of us who are married to Filipinas have got to feel a little sad that our spouses' families really do deserve more.
"People Power" ousted Marcos so why don't they use their collective will to make changes for a better country.
I am guessing that the families who control a lot of the wealth don't really want change as it will hurt their profits.

Aromulus · Jul 17, 2013

aposhark said: ↑

"People Power" ousted Marcos so why don't they use their collective will to make changes for a better country.
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If I recall correctly on what I read, "People Power" was backed by most of the influential families against one common factor........
So, as it stands, it is not in their interest to mess about with something that may just backfire on them....

Januarius · Jul 18, 2013

Aromulus said: ↑

If I recall correctly on what I read, "People Power" was backed by most of the influential families against one common factor........
So, as it stands, it is not in their interest to mess about with something that may just backfire on them....
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Thats correct..Including of course the Aquino`s and Cory`s clan,the Cojuangco`s..
The top ten families that run the business sector in the R.P do not want foreign competition and from a business perspective,who could blame them?
Guess why its so hard for the few, free,modern thinking young legislators to change the 60%-40% or foreign land ownership laws in this country?
If you were lets say a Congressman or a Senator and a member of these big powerful clans your attitude might be to leave things just as they are!!

JEM · Jul 22, 2013

until the people at the top, who hold the purse strings, realise that what makes the phils great, are the very poor people at the bottom, who deserve a better life than they have, until the much, less fortunate people of the phils do something, they will never be any change there, people at the top who have the money to help the people at the bottom end, just keep scamming, making up there own rules to suit themselves to earn even more money, from the very same people that voted these corrupt families, and criminals to power, when are they going to see cense, these people in power promised the philippine people so much, when they are voted in, JOBS, BETTER HOUSING, BETTER THIS, BETTER THAT, but what happens??? nothing, i say rise up all you peoples, be brave, make your country great again, do not be ashamed, what do you think MARKHAM????? i really do understand why most young people want to leave the Philippines!!!!!..........

Anon220806 · Jul 22, 2013

“If the people will lead, the leaders will follow.”

Ghandi

Markham · Jul 23, 2013

But Ghandi wasn't a Filipino. Had he been, his message might be somewhat different.

Anon220806 · Jul 23, 2013

Markham said: ↑

But Ghandi wasn't a Filipino. Had he been, his message might be somewhat different.
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Suggestions anybody?

Markham · Jul 23, 2013

Possibly "Don hayaan ang bastards magsuot ka pababa" which is a loose translation of "Nil carborundum illigitimii". The brevity of the Latin 'original' is so much more forceful!

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